The Federal Government has announced its formal response to the final report of the Northern Australia Insurance Premiums Taskforce, as well as its response to the Senate Inquiry into the general insurance industry.
In response to the taskforce, the Government backed the role of mitigation and stated that it would not intervene in the insurance market directly.
“In its assessment of policy options, the Taskforce found that mitigation activities to reduce the risk of damage from cyclones are the only way to reduce premiums on a sustainable basis,” Kelly O’Dwyer, minister for revenue and financial services said in the official response. “The Government accepts this finding, and will not intervene directly in the insurance market.”
Dallas Booth,
NIBA CEO, welcomed the decision not to intervene.
“Those sorts of matters can lead to all sorts of unintended consequences when those sorts of things happen,” Booth told
Insurance Business.
The ICA also welcomed the response, with Rob Whelan, ICA CEO, calling it “fair, reasonable and balanced” and calling for the Government to step up its mitigation efforts.
“In its pre-Budget submission lodged last week, the Insurance Council urged the Government to commit to implementing the Productivity Commission recommendations by investing at least $200 million a year on mitigation,” Whelan continued. “Notwithstanding Budget pressures and debt reduction targets, investing in mitigation must be made a high priority by this government.”
Rather than intervene in the market, the Government will proceed with a set of reforms designed “to place downward pressure on insurance premiums through increased accountability and transparency within the industry.”
The Government called on the
Insurance Council of Australia to “expedite” its work on reforming the General Insurance Code of Practice and tasked
ASIC with developing options to improve consumer understanding of insurance products as part of its development of a financial literacy strategy.
The Commonwealth treasury was also tasked with developing proposals to improve consumer understanding “through better transparency and enhanced disclosure practices in the insurance sector.”
The Government response also calls for an extension of the unfair contract term provisions to contracts of insurance, a move that Booth questioned.
“We are very cautious about that and in some instances really quite nervous,” Booth said. “Ultimately, it may operate in favour of clients and policyholders and if it turns out to be a positive mechanism for clients then the brokers would support that.
“There are things that have to operate where the insurers have to have a capacity to set their own terms of what risks they will receive and what prices they will charge for those risks. If you start changing that, you upset the process.”
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